The ongoing saga of a Japanese rail and hotel giant and its big U.S. shareholder

Chris Cooper and Kiyotaka Matsuda, Bloomberg

- Jul 05, 2013 10:46 am

Skift Take

U.S. companies rarely have succes getting board seats at Japanese companies, and Cerberus’ combination of bravado and poor choices (hello, Mr. Laughingston Vice President) are only adding to its woes.

— Jason Clampet

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Seibu Holdings Inc. met with Cerberus Capital Management LP, its largest shareholder, today for the first time since the fund lost a fight for board seats, to discuss how to “move forward.”

Norinchukin Bank and Development Bank of Japan Inc., the largest lender of the hotel and train operator, also attended the meeting, Shuhei Akasaka, a spokesman for Seibu, said by telephone today. He declined to provide details of the meeting.

Cerberus, which failed in its bid to have eight directors elected to Seibu’s board on June 25, aims to improve profitability at Japan’s fourth-largest hotel operator before selling shares to the public. Seibu President Takashi Goto has said he won’t offer “any concessions” to Cerberus.

“It’s a good sign,” said Nicholas Benes, a representative director of The Board Director Training Institute of Japan. “It could be progress. Dialogue and discussion is all about being open-minded.”

Cerberus, with a 35.5 percent stake in Seibu, recommended executives including former U.S. Vice President Dan Quayle and former U.S. Treasury Secretary John Snow to the board. The fund’s representatives won 39.8 percent of the votes cast, while the hotel operator’s nominees all won at least 59 percent of the vote, according to a statement from Seibu the day after the shareholder meeting.

World’s richest man

Yoshiaki Tsutsumi, who holds 36 percent of second-largest Seibu shareholder NW Corp., backed the hotel and rail operator. Tsutsumi amassed a $16 billion personal fortune while at the helm of Seibu and was named the world’s richest man by Forbes magazine in 1990.

Seibu has said it’s “financially prepared” for an initial public offering, while Cerberus has said it’s willing to wait as long as three years and wants the company to improve earnings.

Tokorozawa, Japan-based Seibu had net income of 15.6 billion yen ($156 million) in the year ended March, compared with 8.4 billion yen a year earlier, with sales of 459 billion yen, according to the company.

Stephen A. Feinberg’s fund spent about 120 billion yen acquiring its stake in Seibu, which was delisted in 2004 for breaking exchange rules by misstating stakes. The investment compares with the $7.4 billion it spent to buy an 80.1 percent stake in Chrysler LLC in 2007.

The fight for control at Seibu shows the challenge overseas private-equity funds face in Japan, where attempts by foreign investors to gain board representation have mostly been beaten back.

T. Boone Pickens gave up his attempt to gain a board seat in the 1990s at Koito Manufacturing Co., while Christopher Cooper-Hohn’s Children’s Investment Fund Management UK LLP failed in 2008, as did Warren Lichtenstein’s Steel Partners in 2010 with separate Japanese companies.

Hawaii hotels

Prince Hotels Inc., owned by Seibu, runs a chain of 50 hotels in Japan and around the world, including the Hawaii Prince Hotel Waikiki. Seibu got 155 billion yen, about a third of its revenue of 459 billion yen, from its hotel and leisure businesses in the year ended March, according to the company.

Cerberus published a list of nine topics earlier this month that it wanted to raise at the shareholders meeting, including failures to meet profit targets, lack of comparisons of results with other companies in the industry, and lack of disclosure on its operations in Hawaii.

Cerberus, which raised its stake in Seibu in May, led a 2006 bailout of the seventh-largest railway operator in the Tokyo area with Nikko Principal Investments Japan Ltd.

The hedge fund, which announced a tender offer in March to boost its stake in Seibu, ended up buying 10 million shares, 3.04 percent of the amount outstanding.

Editors: Terje Langeland, Teo Chian Wei. To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net; Kiyotaka Matsuda in Tokyo at kmatsuda@bloomberg.net. To contact the editor responsible for this story: Anand Krishnamoorthy at anandk@bloomberg.net.